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CIRCULAR No

CIRCULAR No. 42/2002/TT-BTC OF MAY 7, 2002 GUIDING A NUMBER OF POINTS IN THE REGULATION ON THE SETTING UP, ORGANIZATION AND OPERATION OF CREDIT GUARANTEE FUNDS FOR SMALL- AND MEDIUM-SIZED ENTERPRISES, ISSUED TOGETHER WITH THE PRIME MINISTER�S DECISION No. 193/2001/QD-TTg OF DECEMBER 20, 2001

In furtherance of the Prime Minister�s Decision No. 193/2001/QD-TTg of December 20, 2001 promulgating the Regulation on the setting up, organization and operation of Credit Guarantee Funds for small- and medium-sized enterprises (hereinafter called Decision No.193/2001/QD-TTg for short), the Finance Ministry hereby guides the implementation of a number of contents of the said Regulation as follows:

Chapter I

ORGANIZATION, ADMINISTRATION OF CREDIT GUARANTEE FUNDS

1. Conditions for setting up a credit guarantee Fund

- Having a scheme for setting up a credit guarantee fund, which has been approved by the president of the People Committee of the province or centrally-run city. The scheme�s contents must prove the demand for credit guarantee of the small- and medium-sized enterprises operating in the locality and the feasibility of the plan on organization and operation of the to be-set up credit guarantee fund for the first 3 years.

- Having a minimum charter capital of VND 30 billion, which shall be contributed by organizations and individuals inside and outside the country for the establishment of the fund, of which the capital allocated from the provincial/municipal budget must not exceed 30%.

- Having a list of the expected Management Council, Control Board and Executive Board members with full civil act capacity, university degree and at least 5-year working experiences in the field of economics, finance or banking.

- Having a draft charter compliant with the provisions in Article 6 of the Regulation on the setting up, organization and operation of Credit Guarantee Funds; issued together with the Prime Minister�s Decision No.193/2001/QD-TTg, and other law provisions.

2. Order of setting up credit guarantee funds

- Based on the demand for credit guarantee of the small- and medium-sized enterprises in their respective localities, the presidents of the People�s Committees of the provinces and centrally-run cities shall issue decisions to set up boards of preparation for the establishment of credit guarantee funds (called preparation boards for short).

Each preparation board is composed of representatives of the provincial/municipal Finance Service, Planning and Investment Service, State Bank�s branch, and representatives of organizations supporting the small- and medium-sized enterprises.

The preparation board is tasked to assist the president of the People�s Committee of the province or centrally-run city in studying and elaborating the scheme and preparing necessary conditions for setting up a credit guarantee fund, and submitting it to the latter for consideration and decision.

The preparation board shall automatically dissolve after the president of the provincial/municipal People�s Committee issues the decision on setting up the credit guarantee fund.

- Based on the conditions for setting up credit guarantee funds, the president of the provincial/municipal People�s Committee shall consider and decide on the setting up of a credit guarantee fund in the locality.

- Within 05 days after issuing the decision to set up a credit guarantee fund, the president of the provincial/municipal People�s Committee must send a report to the Finance Ministry on the setting up of the credit guarantee fund in his/her locality, which is enclosed with the copies of relevant documents, including:

+ The credit guarantee fund - setting up decision.

+ The already approved credit guarantee fund - setting up scheme.

+ The relevant documents, proving the satisfaction of all conditions for setting up the credit guarantee fund.

3. Conditions for operation of the credit guarantee fund

Within 6 months after the president of the provincial/municipal People�s Committee issues the setting-up decision, the credit guarantee fund shall have to commence its operation. At least 30 days before commencing its operation, the credit guarantee fund shall have to publish on three consecutive issues of a local newspaper or announce on the local mass media the credit guarantee fund -setting up decision, its operation contents and scope, its target customers.

4. Operational administration of the credit guarantee fund

4.1. The operational administration of the credit guarantee fund shall be delegated to the Development Assistance Fund under a delegation contract.

4.2. The credit guarantee fund and the Development Assistance Fund shall have to conclude a delegated service contract, which states the delegated jobs; the tasks and powers of the concerned parties; the delegation charge and mode of payment; the duration of the contract; the information and reporting regime; the settlement of disputes, handling of risks and other terms.

- Delegation charge:

The delegation charge shall be agreed upon by the two parties but must not exceed the credit guarantee charge prescribed in Article 18 of Decision No.193/2001/QD-TTg.

The delegation charge payable by the credit guarantee fund to the Development Assistance Fund shall be determined according to the following formula:

The credit

The delegation charge The delegation charge guarantee charge

to be paid to the Development = ----------------------------------- x amount actually

Assistance Fund in the period The credit guarantee charge collected

in the period

4.3. Basic contents regarding the responsibilities and powers of the credit guarantee fund and the Development Assistance Fund in the delegation contract.

a/ For the credit guarantee fund:

+ To work out operational regulations and procedures to guide the contents of its operation, which shall be notified to the Development Assistance Fund to serve as the basis for implementation.

+ To provide information on the policy for customers to enjoy credit guarantee in each period so that the Development Assistance Fund may consider and receive dossiers of application for the granting of credit guarantee.

+ To authorize the Development Assistance Fund to exercise its powers and perform its obligations in the granting of credit guarantee to the customers mentioned at Point 1, Article 21 of Decision No.193/2001/QD-TTg. To authorize the Development Assistance Fund to sign compulsory loan contracts, and recover loan principals and interests from the customers.

+ To pay the delegation service charge to the Development Assistance Fund according to the delegation contract.

+ To inspect and supervise the Development Assistance Fund in the implementation of the credit guarantee fund�s operational regulations and procedures.

+ To transfer enough money to the Development Assistance Fund so that the latter can realize the guarantee commitment after receiving the Development Assistance Fund�s notice on its commitment realization liability.

b/ For the Development Assistance Fund

The Development Assistance Fund shall be responsible for carrying out all the credit guarantee fund�s credit guarantee activities in strict compliance with the State�s undertakings, policies and law as well as the operational regulations and procedures promulgated by the credit guarantee fund�s Management Council, including:

+ Receiving and evaluating dossiers strictly according to the credit guarantee fund�s guarantee regulations and procedures in order to decide or refuse to grant credit guarantee to the customers.

+ Exercising the rights and performing the obligations of the credit guarantee fund in the granting of credit guarantee to the customers mentioned at Point 1, Article 21 of Decision No.193/2001/QD-TTg.

+ Realizing the guarantee commitment after receiving money from the credit guarantee fund. In the realization of a commitment to grant guarantee to the customer, the Development Assistance Fund shall request the customer to acknowledge compulsory debt with an interest rate equal to 130% of the lending interest rate under the credit contract already signed by the customer with the concerned credit institution. The Development Assistance Fund shall have to recover the compulsory debt principals and interests.

+ Regularly and extraordinarily reporting fully on the situation of operational administration to the credit guarantee fund at the latter�s request. Particularly for compulsory debts, the Development Assistance Fund shall have to send monthly reports to the credit guarantee fund on the financial situation of the debtors, debt recovery and recoverability.

+ Performing other tasks under the agreement between the credit guarantee fund and the Development Assistance Fund.

+ Enjoying the delegation service charge as agreed upon with the credit guarantee fund.

5. Credit guarantee contract

- The credit guarantee fund shall delegate the Development Assistance Fund to negotiate and sign with the guarantee-receiving credit institution and guaranteed customer a credit guarantee contract, which shall include the following principal contents:

+ The names, addresses of the Development Assistance Fund, the guarantee-receiving credit institution and the guaranteed customer.

+ The purpose, subject and scope of guarantee.

+ The total value of the customer�s loan at the credit institution.

+ The total value of assets mortgaged or pledged at the credit institution.

+ The guaranteed sum of money, guarantee term, guarantee charge and mode of collection thereof.

+ The rights and obligations of the parties to the guarantee contract.

+ The terms on debt acknowledgement and guarantee redemption after the fulfillment of the guarantee commitment by the Development Assistance Fund.

+ The settlement of arising disputes.

+ Other agreements.

- The credit guarantee contract may be amended, supplemented or annulled if it is so agreed upon by the concerned parties.

- The credit guarantee contract shall terminate in the following cases:

+ The Development Assistance Fund has fulfilled the guarantee obligation and the customer has fulfilled all obligations towards the Development Assistance Fund.

+ The guarantee obligation terminates under law provisions.

+ The customers have fulfilled all obligations towards the credit institution and the Development Assistance Fund.

+ The credit guarantee term has expired in cases where the guarantee contract stipulates the effective duration of the guarantee.

+ The credit institution agrees to cancel the guarantee according to law provisions.

+ The guarantee is replaced by other security measures for the customer�s loan money at the credit institution as agreed upon by the concerned parties.

Chapter II

FINANCIAL MANAGEMENT OF CREDIT GUARANTEE FUNDS

1. Provisions on management of capital and properties of credit guarantee funds

1.1. The operation capital of a credit guarantee fund shall come from the following sources:

a/ Charter capital: is the total capital amount contributed by organizations and individuals and inscribed in the charter of the credit guarantee fund. The credit guarantee fund�s charter capital shall be created from:

- Capital allocated by the budget of the province or centrally-run city, which shall not exceed 30% of the minimum charter capital. The chairman of the credit guarantee fund�s Management Council and the director of the credit guarantee fund shall be the persons to sign the reception of capital from the State budget.

- Capital contributed by credit institutions.

- Capital contributed by enterprises of all economic sectors.

- Capital contributed by trade associations as well as organizations representing and supporting the small- and medium-sized enterprises.

b/ Support capital (including ODA capital) provided by organizations and individuals inside and outside the country for the target of developing the small- and medium-sized enterprises, cooperatives as well as agricultural, forestry and fishery development programs.

c/ Capital supplemented by the credit guarantee fund itself from its operation results.

1.2. The credit guarantee fund�s operation capital must be used for the right purposes and efficiently, ensuring safety and for the following objectives:

- Granting of credit guarantee to customers according to regulations.

- Investment in and procurement of, fixed assets in service of operation of the credit guarantee fund according to the principle that the remaining value of the fixed assets shall not exceed 7% of the Fund�s charter capital. The credit guarantee fund�s fixed asset-investment and procurement work must strictly comply with the State�s stipulations on investment and construction management. Annually, the credit guarantee fund must work out a fixed asset- investment and -procurement plan to be submitted to its Management Council for consideration and approval and performance of the investment and procurement work under the approved plan.

- Opening of deposit accounts at the State Treasury and domestic credit institutions located in the same province or centrally-run city.

- Purchase of the Government bonds.

- Performance of the Fund�s guarantee commitment toward the credit institution in cases where the customer fails to pay or pay up debts to the credit institution.

1.3. The operation reserve fund

- The operation reserve fund shall be set up with deduction of 50% of the credit guarantee charge amount collected from customers, after subtracting the service charge amount to be paid to the Development Assistance Fund. The operation reserve fund shall be used to:

+ Provide compulsory loans to the customers according to the credit guarantee fund�s committed guarantee liability in cases where the customers fail to pay or pay up debts to the credit institution. The compulsory debt amount recovered by the credit guarantee fund shall be used to offset the operation reserve fund.

+ Make up for the bad loans, which have been compulsorily granted to the customers. The financial handling of such loans of the credit guarantee fund shall comply with the regulation issued by the credit guarantee fund�s Management Council.

- In cases where the operation reserve fund is not enough to provide compulsory loans to the customers and offset irrecoverable compulsory loans, the credit guarantee fund may use its operation capital to fulfil the committed guarantee obligation on behalf of the customers.

1.4. The credit guarantee fund shall open accounting books to monitor all of its existing capital and properties; handle cases of causing damage or losses to the properties; sell, liquidate, inventory and evaluate properties according to the provisions of the State enterprise legislation and general law provisions.

2. Incomes of the credit guarantee fund

The credit guarantee fund�s incomes are its actually-collected amounts in the year, including:

- Credit guarantee charge.

- The charge for evaluation of dossiers of application for the granting of credit guarantee.

- Interests on deposits at the State Treasury and domestic credit institutions.

- Interests from investment in the Government bonds.

- Interests on overdue debts (compulsory loans) from customers.

- Other amounts, including the proceeds from the sale and liquidation of fixed assets.

All amounts collected by the credit guarantee fund shall be accounted in its incomes and evidenced by valid invoices and vouchers.

3. Expenditures of the credit guarantee fund: are the actual expenditures necessary for operation of the credit guarantee fund, evidenced by valid invoices and vouchers. The spending levels and contents shall comply with the provisions of law. For those which are not yet provided for by law, the credit guarantee fund shall, based on its financial capacity, work out the spending norms, decide on the expenditures and take responsibility before law therefor. All expenses must be included in the Fund�s annual financial plan already approved by its Management Council, including:

3.1. Expenses for credit guarantee activities

- The service charge paid to the Development Assistance Fund under the delegation contract between the two parties.

- The expense for the setting up of the operational reserve fund.

- Other expenses arising in the course of granting credit guarantee to the customers.

3.2. Expenses for laborers working directly at the credit guarantee fund, including:

- Salaries, wages and those of salary and wage nature.

- Allowances to full-time members of the Management Council and Control Board.

- Expenses for mid-shift meals, for female laborers, on labor protection, working uniforms, and severance allowances for laborers according to current regulations.

- Social insurance, health insurance and trade union funding.

3.3. Expenses for managerial activities:

- The expense for the procurement of office supplies: materials, prints, stationery.

- Post and communications charges.

- The expense for electricity, water, office sanitation, environment protection, and healthcare for office personnel.

- The expense for petroleum in service of performance of the Fund�s tasks.

- Allowances for overseas and domestic working trips of the Fund�s personnel.

- The expense for guest reception, external relation transactions, ceremonies, conferences, propaganda and advertisements.

- The expense for training and scientific research.

- Other managerial expenses.

3.4. Expenses for properties

- The expense for capital depreciation of fixed assets, which shall comply with the State�s regulations for enterprises.

- The expense for the purchase of insurance for properties, maintenance, repair and rent of properties, and procurement of labor tools.

- The expense for the sale and liquidation of properties (including the remaining value of properties put on liquidation or sale).

3.5. The payment of taxes, charges and fees.

3.6. Other reasonable and valid expenses.

4. Income-expenditure difference: The credit guarantee fund�s income-expenditure difference in a year is determined to be the difference between its total incomes and total reasonable and valid expenditures, which shall be handled as follows:

4.1. In cases where the incomes are larger than the expenditures

- To deduct 15% for the addition to the operation capital of the credit guarantee fund.

- To deduct 10% for the establishment of the financial reserve fund. This fund shall be used to cover losses and damage of properties incurred in the credit guarantee fund�s operation process after such losses and damage are offset by compensations of organi-zations and/or individuals causing them, the insurance organizations, and the operation reserve fund.

- To deduct 30% for the establishment of the professional development investment fund, which shall be used to invest in the operation expansion and renewal of equipment as well as improvement of working conditions of the credit guarantee fund.

- To make deductions for setting up the reward and welfare funds, which shall be at most equal to 3 months� actually paid salaries in the year.

The reward fund shall be used to give regular or irregular rewards to officials and public servants working in the credit guarantee fund, and to individuals and organizations outside the credit guarantee fund that have economic relations with it and have satisfied the contractual conditions, making fruitful contributions to the operation of the fund.

The welfare fund shall be used for investment in the construction, repair and maintenance of the credit guarantee fund�s welfare projects; to spend on sport, cultural and public welfare activities of the collective of the Fund�s staff; and to grant regular or unexpected difficulty subsidies to its employees.

- The remaining amount shall be used as profit dividends to organizations contributing capital to the credit guarantee fund.

4.2. In cases where its incomes are smaller than its expenditures, the credit guarantee fund may carry forward the difference to the subsequent year within a period of no more than 5 years. After 5 years, if the said difference has not been fully carried forward, the credit guarantee fund shall report the case to the president of the People�s Committee of the province or centrally-run city for consideration and decision of the reduction of operation capital, reorganization or dissolution of the credit guarantee fund.

5. Tax obligations of the credit guarantee fund

The credit guarantee fund is exempt from taxes and other State budget remittances for credit guarantee activities, including: value added tax on credit guarantee activities, enterprise income tax and levy on the use of State budget capital, regarding the capital amount contributed by the local budget.

For other taxes, charges and fees arising in the course of its operation, the credit guarantee fund shall comply with the current law provisions.

6. Accounting regime for the credit guarantee fund

The cost accounting and monitoring of the credit guarantee fund�s guarantees shall comply with the system of book-keeping accounts promulgated by the Finance Ministry.

Chapter III

INFORMATION, REPORTING AND INSPECTION REGIMES

1. For customers

Customers shall have the responsibility to report to the Development Assistance Fund and submit to the regular or irregular inspection by the Development Assistance Fund and the credit guarantee fund regarding the situation of operation related to the guaranteed transaction. The contents of reports and inspection regime of the credit guarantee fund shall be agreed upon by the concerned parties and inscribed in the credit guarantee contracts.

2. For the credit guarantee fund

- The reporting on the situation of its operation to organizations and individuals contributing capital to the Fund shall comply with the provisions of its charter.

- The credit guarantee fund shall have to sum up the situation of its credit guarantee activities and general activities in order to draw up and send to the People�s Committee of the province or centrally-run city and the Finance Ministry the quarterly and annual reports on:

+ The balance sheets of grade-III accounts, including off-sheet accounts.

+ The explanations on its financial reports, covering the following contents: incomes-expenses; the situation on the increase and decrease of fixed assets; and the increase and decrease of as well as changes in capital sources and the use of capital.

+ The situation on the granting of credit guarantee to customers;

+ The situation on the balance of compulsory loans and their recoverability.

- The report-sending time limit: The quarterly reports must be sent within 45 days from the last day of the quarter. The annual reports must be sent within 60 days from the last day of the year.

- The credit guarantee fund shall submit to the supervision and inspection of the People�s Committee of the province or centrally-run city and the Finance Ministry according to current regulations.

3. For the Development Assistance Fund

The Development Assistance Fund shall have to report periodically or extraordinarily to the credit guarantee fund on the situation of operational administration of the credit guarantee fund according to the provisions of Point 4, Chapter I of this Circular.

Chapter IV

DISPUTES- LAWSUITS - DISSOLUTION AND LIQUIDATION

1. All disputes and lawsuits between the credit guarantee funds and legal persons as well as natural persons directly or indirectly relating to the credit guarantee funds� activities shall be handled according to the current laws of the Socialist Republic of Vietnam.

2. The reorganization or dissolution of credit guarantee fund shall comply with the decisions of the presidents of the People�s Committees of the provinces and centrally-run cities and current provisions of the legislation on enterprises.

Chapter V

ORGANIZATION OF IMPLEMENTATION

1. The presidents of the People�s Committees of the provinces and centrally-run cities, the chairmen of the credit guarantee funds� Management Councils shall have to strictly implement the Regulation on the setting up, organization and operation of the credit guarantee funds, issued together with the Prime Minister�s Decision No.193/2001/QD-TTg and the contents of guidance in this Circular.

The presidents of the People�s Committees of the provinces and centrally-run cities shall quarterly and irregularly report to the Finance Ministry on the results and situation of operation of the credit guarantee funds in their respective localities, proposing solutions to remove difficulties in the Funds� activities.

2. The credit guarantee funds shall have to issue documents guiding their specific operations according to the Prime Minister�s Decision No.193/2001/QD-TTg and the contents of guidance in this Circular.

3. In the course of implementation, the Finance Ministry shall inspect and supervise the setting up, organization and operation of, as well as the observance of the State�s law provisions by, the credit guarantee funds in the provinces and centrally-run cities.

4. This Circular takes effect 15 days after its signing. In the course of implementation, if any problem arises, it should be reported to the Finance Ministry for consideration, supplementation and/or amendment.

For the Finance Minister

Vice Minister
LE THI BANG TAM